Gold drops on slack demand, profit-booking

MUMBAI/LONDON: A combination of profit-booking, decline in arbitrage and slack demand drove gold lower to Rs 19,068 per 10 gm in Mumbai on Wednesday, down 0.9% from its historic high on Tuesday.

Bullion dealers said the fall in demand was reflected by the local spot price trading at a $7 an ounce discount to the imported rate charged by banks. According to them, June and July are traditionally slack periods and demand would pick up from August before the festive season gets under way. This will be followed by the marriage season till February.

A bullion dealer said the spread between Comex gold and gold futures traded in the local market had narrowed to Rs 50 from Rs 120, thereby driving arbitrageurs out of the market.

Scrap supplies have not shown a sharp increase despite the metal rising to historic levels as "consumers wait for the price to test the Rs 20,000 level," said Maganlal Chowdhury of Jugraj Kantilal, a prominent old jewellery buyer in Mumbai's Zaveri Bazaar. "We are witnessing scrap arrivals of 2-2.5 kilo daily, which has not been very different from the past," he said.

The metal declined in New York as some investors sold it after its rally and as a rebound in equities curbed demand for bullion as a haven asset.

Gold futures climbed to a record $1,254.50 an ounce on Tuesday as holdings in the world's biggest gold-backed exchange-traded fund advanced to an all-time high. European stocks climbed on Wednesday on increased confidence that the global economy can withstand the effects of the region's sovereign-debt crisis, as Reuters reported that China's exports surged.

"Equity markets are positive, and that's weighing a little on gold," said Peter Fertig, owner of Quantitative Commodity Research in Hainburg, Germany. Investor sales to lock in gains from the advance to a record "may also be the case for lower prices," he said. Gold futures for delivery in August lost $10.60, or 0.9%, to $1,235 an ounce at 8:09 am on the Comex in New York.

Gold for immediate delivery in London was 0.3% lower at $1,233.45 an ounce. Spot prices reached a record $1,252.11 on Tuesday then gold could pull back toward $1,200.

Bullion jumped 13 per cent this year and is on course for a 10th straight annual advance, the longest run of gains since at least 1920. The metal has gained amid speculation that debt- cutting measures by European nations will slow growth. The euro is down 16 per cent against the dollar this year.